UK growth forecasts upped again as confidence hits four-year high

The UK economy will grow faster than expected, said the British Chambers of
Commerce, as it once more raised its forecasts, while a closely-watched
index showed consumer confidence rebounding to a four-year high.

The UK's vast services sector, which includes the City, has performed better than expected in recent monthsPhoto: ALAMY

The business lobby group now expects growth to come it at 1.3pc for 2013, picking up to 2.2pc and 2.5pc in the next two years. That compares to its May predictions for growth of 0.9pc for this year, and 1.9pc and 2.4pc following.

The better than expected 0.7pc growth seen in the second quarter of this year, alongside a stronger services sector and the expected contribution from household consumption, lay behind the improved forecasts, said David Kern, chief economist at the BCC.

The trade performance has also been more robust than predicted, he stressed, pointing to the “real” trade deficit - stripping out inflation - which has more than halved over the last three years.

“Though the rebalancing of our economy towards exports is not yet sufficient, we have made more progress than people realise,” Mr Kern said. “We should not be too concerned that consumer spending is helping to drive the recovery – it is better to rely initially on the consumer than to have no growth at all.”

However, he said the recovery was still not secure, and warned against more quantitative easing as the US is expected to “taper” its own effort off. This would weaken the pound to the point that “higher domestic inflation could threaten the recovery”, he believed.

Separately, the monthly consumer confidence barometer from researchers GfK rose three points in August to minus 13, its highest level since October 2009.

The latest rise was driven by the public’s improving confidence in the economy as a whole and signalled a 14-point climb over the last four months, the biggest swing seen over that length of time in three decades.

Nick Moon, managing director of social research at GfK, called it a “conundrum of Alice in Wonderland proportions” as, despite a pick-up in UK growth, “real” incomes are still falling.

It seems sentiment is being driven by headline economic growth figures, including the revision away of the UK’s apparent “double dip” into recession, rather than the pressure on incomes.

Nonetheless, Sir Martin Sorrell, chief executive of the world’s advertising company WPP, on Thursday called the UK’s economic performance a “vindication” of the Chancellor’s policies.

“It’s been a tough five years since Lehman [Brothers failed] in September 2008 but life is getting a little bit better in the UK, there’s no denying that fact,” he said. “These economic policies that were decried several years ago are starting to work - albeit with considerable difficulty, considerable unemployment ... [which is] still at socially unacceptable high levels.”